Treasury and the IRS released final and temporary regulations (T.D. 9666) on June 2 that allow taxpayers the flexibility to claim the alternative simplified credit (ASC) on an amended return under Section 41(c)(5).
Section 41 generally allows a taxpayer to claim a 20% "regular credit" for costs exceeding a base amount. The base amount computation for the regular credit often requires historical data from the 1980s, making it difficult for certain taxpayers to compute and substantiate the regular credit. Section 41(c)(5), however, allows taxpayers to elect a 14% ASC that relies only on the prior three years' data for base amount purposes, relieving the administrative burden for many taxpayers. Prior regulations (T.D. 9528) dictated that the ASC election could not be made on an amended return, meaning that taxpayers that did not claim a credit on an original return may have been unable to benefit from the credit on an amended return.
That restriction has now been lifted by the new final and temporary regulations. However, certain restrictions remain in place. A taxpayer that claimed the regular credit on a prior year return cannot amend that return to now claim an ASC. Additionally, members of a controlled group cannot file for the ASC on a prior year return if any member of the group has already claimed the regular credit for that year.
Taxpayers already claiming the R&D credit for their open tax years will not be affected by the new rules. However, taxpayers with any open years where no credit has been claimed should re-evaluate their situations to see if they can now claim the ASC credit.
The regulations are effective beginning June 3, 2014 and can be applied to any open tax years. Proposed regulations, relying on the same text as the temporary rules, were released concurrently with public comments requested.
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